Multifamily property prices break string of declines

Sell multifamily property

CoStar reported that its value-weighted index of multifamily property prices rose 1.3 percent month-over-month in September 2023, the first gain in 14 months. However, this index was still down 16.6 percent year-over-year.

The value-weighted index of non-multifamily commercial property rose 0.2 percent, year-over-year, in September. This index fell 0.5 percent month-over-month. The other commercial property types tracked by CoStar are office, retail, industrial and hospitality.

For more information on the CoStar Commercial Repeat Sales Indexes (CCRSI’s), please see the section at the bottom of this report.

YoY multifamily property prices down

The first chart, below, shows the history of the value-weighted CCRSI’s since January 2016 for multifamily property and for all other commercial property considered as a single asset class. It also shows trend lines for the growth in the two CCRSI’s based on their growth in the period from January 2012 to January 2020. The indexes are normalized so that their values in December 2000 are set to 100.

multifamily property price history

The chart shows that both multifamily property prices and prices for other commercial property types have returned to near their pre-pandemic trends after deviating significantly from those trends during the pandemic. In September, multifamily property prices were reported to be within 0.5 percent of their long-term trend while prices for other commercial property types were within 0.1 percent of their long-term trend.

The second chart shows the year-over-year change in the value-weighted multifamily property price index and that for all other commercial property types since January 2016. It also shows the average rates of annual price growth for the two property classes since January 2012.

year-over-year multifamily property price change

The chart shows that the year-over-year growth in multifamily property prices is still negative, but less negative than in recent months. Non-multifamily commercial property prices have been nearly unchanged on a year-over-year basis over the last 4 months. However, a “normal” pattern would show some year-over-year growth.

Since January 2012, the average annual increase in multifamily property prices has been 8.2 percent while that of other commercial property prices has been 6.2 percent.

Regional differences

CoStar’s quarterly reports include information on changes in the equal-weighted CCRSI by property type and region. The history since Q1 2000 of these regional indexes for multifamily property is shown in the next chart, below.

long term history of multifamily property prices

Multifamily property prices were below their recent highs in all four regions of the country in Q3 2023. However, only the Midwest region saw prices decline quarter-over-quarter in Q3.

While prices in the Northeast region have risen more than in the other regions since 2000, they have risen at the slowest pace of any of the regions since 2016. Since 2016, the average year-over-year increase in the regional multifamily CCRSI for the Northeast region has been 5.1 percent. The South region has had the highest average rate of price appreciation at 12.0 percent, followed by the West at 10.3 percent and the Midwest at 8.6 percent.

The next chart shows the history of the year-over-year regional multifamily property price changes by quarter since 2016. The chart shows that prices are currently falling year-over-year in all regions of the country.

year-over-year regional multifamily property price changes

Based on CoStar’s equal-weighted quarterly indexes and comparing to year-earlier levels, prices in Q3 2023 were down by 4.9 percent in the Northeast, 3.7 percent in the South, 9.4 percent in the Midwest and 7.8 percent in the West.

Transaction volumes up

An issue with monthly transaction volume reporting is that CoStar usually identifies additional transactions to tabulate over the next few months after the initial report, and these extra transactions tend to make initial reports of declining transaction volumes look worse than they are.

CoStar reported that the initial transaction count for September was down from that of the prior month at 1,132 transactions. However, last month’s transaction count was revised higher by 13 percent as 146 additional transactions were identified for August. On an initial report to initial report basis, transactions in September were up 3 percent for the month.

Likewise, the preliminary dollar volume of transactions was reported to fall 5.7 percent from the revised level of the month before at $8.3 billion. However, it was up 5.1 percent from the preliminary level reported last month.

The full report discusses all commercial property types. While the CoStar report provides information on transaction volumes, it does not break out multifamily transactions. The latest CoStar report can be found here.

CCRSI defined

The CoStar report focuses on a relative measure of property prices called the CoStar Commercial Repeat Sales Index (CCRSI). The index is computed based on the resale of properties whose earlier sales prices and sales dates are known. The index represents the relative change in the price of property over time rather than its absolute price. CoStar identified 1,132 repeat sale pairs in September for all property types. These sales pairs were used to calculate the results quoted here.

CoStar computes CCRSI’s for a variety of property groupings, combining them by cost, region, property type or other factors. The value-weighted index is more heavily influenced by transactions of expensive properties than is CoStar’s equal-weighted index. The value-weighted index is the focus of this report because it is an index whose value is reported monthly and for which CoStar breaks out multifamily property as a separate category.